Estate Tax In US

Estate Tax is a tax on your right to transfer property at the time of your death. The term estate tax is distinguished from inheritance tax in case of the USA. While “estate tax” taxes the personal representatives of the deceased such as a decedent citizen of the US, an “inheritance tax” taxes the beneficiaries of the estate. However, this distinction is done way with in countries such as UK and some countries in the Commonwealth where terms such as Inheritance Tax or Death Tax would refer to the same as an estate tax.

Estate Tax is a tax on your right to transfer property at the time of your death. The term estate tax is distinguished from inheritance tax in case of the USA. While “estate tax” taxes the personal representatives of the deceased such as a decedent citizen of the US, an “inheritance tax” taxes the beneficiaries of the estate. However, this distinction is done way with in countries such as UK and some countries in the Commonwealth where terms such as Inheritance Tax or Death Tax would refer to the same as an estate tax. In Bermuda, death of a person gives rise to the charge of a stamp duty.

The estate tax, administered by the Internal Revenue Service under the Department of Treasury in case of the USA is charged on the “taxable estate” which is arrived at after allowing certain deductions on the “Gross Estate” of the individual. These deductions include mortgages and debts and estate administration expenses and properties passed onto surviving spouses and qualified charities. The estate tax is applied on the executor of the property when it is transferred via a will or according to the state laws of intestacy.

It should be noted in this context that “Gross Estate” might include everything the individual owned and also had an interest in at the date of his death. This might include cash and securities, insurance, trusts, annuities, real estate, business interests and other assets. The computed value on all these assts is usually done on the basis of a “fair market value” which may not be the market price or value at the time of appropriating these assets. Gross estate might include probate as well as non-probate property.

After the “net amount” based on the taxable estate is computed the value of “lifetime taxable gifts” (beginning with gifts made after 1977) is added to this amount and the value of tax is computed by reducing it by the value of the available “unified credit” which can be thought of as providing an exemption amount on the value of the tax. Unified Tax Credit rates usually hovers between 45%-50% if some previous years are taken into consideration.

It was 46% for 2006 with the exemption limit at $1.5 million and is now fixed at 45%. Rate For any person dying in the years 2006-08, the applicable exemption amount has been fixed at $2,000,000 which might increase to$3,500,000 in 2009 as predicted by the Economic Growth and Tax Relief Reconciliation Act of 2001. Estate tax credits are also allowed on properties inherited within the preceding ten years and if estate taxes were paid on that property. Estate taxes are usually found to affect the wealthiest 2% of the population in its current form.

Estate tax returns are generally due nine months after the death of a person. A six month extension is available if requested prior to the due date and all eligible taxes prior to the date are cleared. Estate taxes can be filed by filling out form 706 with the IRS and detailed instructions are available in Publication 950 with the department.

Some of the States which impose estate tax or inheritance tax at the state level include:

Washington
Wyoming
West Virginia
Wisconsin, and,
Virginia
In case of India, estate taxes do not exist and usually taxes on property inherited can be found to match with the concept of estate tax. India follows a tax system as inherited by virtue of colonial rule where taxes on estates and trusts are used for the purpose of family tax planning. Changes in tax laws have made trusts less commercially viable. According to the Indian Trust Act, 1882, Trust is defined as a vehicle under which the ownership of a property is alienated from an individual and passed onto trustees for the benefit of others. Trusts can be either private or charitable or religious trusts.

Estate taxes are only existent in is true form in the US and various tax consulting agencies and insurance agencies have sprung up since the last decade which provide assistance to people on how to avoid estate tax or to keep their estate tax rates at the lowest level.